The standard deviation of the returns of Stock A is 45.85%, and the standard deviation of the returns of Stock B is 52.7%. Which of the following statements about the stocks is correct?
A) Stock A has less tight probability distribution, and hence lower total risk.
B) Stock A has tighter probability distribution, and hence lower total risk.
C) Stock B has less tight probability distribution, and hence lower total risk.
D) Stock B has tighter probability distribution, and hence lower total risk.
E) Stock B has lower risk, but nothing can be said about the probability distribution.

Question

Quizplus · Accepted Answer

A stock with a tighter probability distribution has lower total risk because it shows less variability or deviation from the expected return. Therefore, Stock A has less total risk since its standard deviation is lower than Stock B.

The Standard Deviation of the Returns of Stock a Is